Included in the 2nd Quarter GDP update this morning was the first look at economy wide corporate profits. In my mind, the first shot across the bow presaging the next recession has been fired.
Q2 Corporate Profits, after tax, were down slightly from the first quarter, and are down 10.9% from their peak in the 4th quarter of 2011. Much of the swing is due to the expiration of accelerated depreciation allowances - which were lowering profits and taxes, but even accounting for those adjustments, overall profits look like they have peaked.
I have been dismissive of calls for a double dip recession based in part on the strength in Corporate Profits. A sustained drop in profits would be the first real shot across the bow of this recovery. All the noise of Europe, flash crashes, Debt Ceiling Debacles, and the Japan Earthquake/Meltdown supply shocks were meaningless in the face of low interest rates and growing corporate profits. With the peak in Corporate Profits, one of the preconditions of a recession is now in place -